The following question was submitted to John Roska, an attorney/writer whose weekly newspaper column, "The Law Q&A," ran in the Champaign News Gazette.
How much are my bank accounts insured for? I remember the limit was raised several years ago, but I thought that was just temporary.
Deposits in banks, savings & loans, and credit unions are insured up to $250,000. It’s possible to have different types of accounts in the same bank, held in different “legal categories of ownership,” with each account insured up to $250,000.
The temporary increase in the insurance limit you mention is now permanent. That limit increased from $100,000 to $250,000 during the financial crisis of 2008, to calm fears about losing money in failed banks. That temporary increase became permanent in 2010 as part of the Dodd-Frank bill, which also created the Consumer Financial Protection Bureau.
The Federal Deposit Insurance Corporation is the main insurer. The FDIC was created by the Glass-Steagall Act, back in 1933, after about 4,000 banks failed. Back then, before deposit insurance, you lost everything when your bank failed.
Now, FDIC insurance protects your accounts if a bank or savings & loan fails. Credit Unions are also insured, but by a different federal agency—the National Credit Union Administration.
As the name suggests, deposit insurance insures deposits. That’s checking and saving accounts, money market accounts, and CDs. Uncashed cashier’s checks are insured, too.
Things that are not deposits, and therefore not insured, are: stocks, mutual funds, or the contents of a safe deposit box. Those contents may be a “deposit,” and even money, but they’re not an account.
The $250,000 of coverage applies to each “legal category of ownership”—or how accounts are held. An individual account, in one name only, is a different legal category from joint accounts with multiple names. Trust accounts—revocable and irrevocable—are another, different legal category of ownership.
Different accounts of the same legal type at the same bank—even different branches—are combined to determine coverage limits. So, if you have 20 different individual accounts at the same bank, the combined total is only insured up to $250,000.
If you also have $250,000 in joint accounts, those joint accounts are separately insured. You could therefore have a total of $500,000 in insured individual and joint accounts.
Joint accounts are divided by the number of owners to determine insurance coverage—not by how much each person contributed. If two people are on the account, each owns one-half; if there’s 3, each owns one-third, and so on. A $1 million joint account with 4 owners is therefore fully insured, since each person gets $250,000 of coverage.
The FDIC says that it pays promptly, either by creating a new deposit for you in a new bank, or by just cutting you a check. (Three Illinois banks have failed since January 1, 2015, costing the FDIC an estimated $80 million.)
If your bank fails and you have more than $250,000 in an account, you might still recover some of the uninsured amount. It depends on how much of the bank assets the liquidators can recover and divvy up.